The International Comparison Program (ICP) is a worldwide statistical initiative to collect comparative price data and estimate the purchasing power parities (PPPs) of the world’s economies. PPPs are currency conversion rates that both convert to a common currency and equalise the purchasing power of different currencies. In other words, they eliminate the differences in price levels between countries in the process of conversion.

The standard method of converting the output or expenditures, measured in the local currency of one economy, to a common unit of account for comparison or aggregation with that of other economies has been to use market exchange rates. However, market exchange rates are determined by the demand for, and supply of, currencies used in international transactions. They do not necessarily reflect differences in price levels and may therefore understate or overstate the real value of an economy’s output and the standard of living of its residents. Using PPPs instead of market exchange rates to convert currencies makes it possible to compare the output of economies and the economic welfare of their inhabitants in real terms (that is, controlling for differences in price levels).

2005 PPP Program

The 2005 International Comparison Program brought together two separate PPP programs. The first was the global ICP program conducted by the ICP global office within the World Bank, which provided overall coordination for the collection of data and calculation of PPPs in more than 100 (mostly developing) economies. The second was conducted by the Statistical Office of the European Communities (Eurostat) and the Organisation for Economic Co-operation and Development (OECD), which comprised 46 (mostly OECD member) economies. The ICP global office has combined the results with those from the OECD-Eurostat PPP program into an overall global comparison, so that results for all participating economies could be compared directly.

The ABS played a significant and leading role in both 2005 PPP programs. Former Australian Statistician Dennis Trewin chaired the 2005 ICP Executive Board, which was the overall policy making body for the ICP. Other ABS staff were members of the ICP Executive Board and Technical Advisory Group. The ABS also provided technical support to the Asia ICP region, which played a significant role in the success of the ICP and set an example for partnering that was recognized by the UN Statistical Commission. Of particular note was the participation of China in the ICP for the first time, and India for the first time since 1985. The Asia ICP provided essential information about the emergence of the Asian economy and updated the important measures of poverty.

The OECD-Eurostat PPP program involved the ABS collecting prices in the Australian community for the items included in the PPP basket. This included around 3000 consumer goods and services, 30 occupations in government, education and health services, around 180 types of equipment goods and 15 construction projects.

Results

Table 29.26 provides a summary of the results from the 2005 ICP for the OECD/Eurostat countries. Adjusted using PPP, Australia had a higher GDP per capita (US$32,798) compared to the OECD-Eurostat average (US$26,404). Luxemburg had the highest GDP per capita (US$70,014), while Albania had the lowest (US$5,369). In comparison, Australia had a higher GDP per capita than New Zealand (US$24,554) and the United Kingdom (US$31,580). Australia had a lower GDP per capita compared to the United States (US$41,674) and Canada (US$35,078).

When comparing the two GDP per capita figures for Australia, when adjusted using the U.S. exchange rate, Australia's GDP per capita (US$34,774) was overstated compared to when it was adjusted using PPP (US$32,798). This was a result of the higher price level in Australia (106) when compared to the U.S. (100).

Australia's price level of 106 means its purchasing power in $US was slightly less than the U.S. (100). Compared to other countries, Australia had a lower price level than the United Kingdom (118) and New Zealand (108), and a higher price level than Canada (100).

For those countries with a price level less than 100, this resulted in their GDP per capita (adjusted using $US) being understated compared to their GDP per capita when adjusted using PPP. The opposite was true for countries with a price level greater than 100.

Using the results from table 29.26, graph 29.27 shows the relationship between the price level and GDP per capita. There was a clear, positive relationship, whereby those countries with a low level of GDP per capita generally had a lower price level, while countries with a higher level of GDP per capita generally had a higher price level.

29.27 Comparison of GDP per capita (GDP) and Price level
Source: The International Comparison Program, The World Bank.

Table 29.28 compares the per capita GDP figures and the price level for countries from the Asia-Pacific region with Australia. Australia had one of the highest per capita GDPs in the region, which was around nine times the Asia-Pacific average. When compared to the World average, it was more than 3 times higher. Australia's GDP per capita (US$32,798) remains below countries such as Brunei (US$47,465), Singapore (US$41,479) and Hong Kong (US$35,680).

Emerging countries such as China (US$4,091) and India (US$2,126) still had a significant difference between their GDP per capita levels compared to Australia.

Australia's price level index of 106 was also higher than the Asia-Pacific average (41) and the World average (81). Compared to countries in the Asia-Pacific region, Australia was the only country to have a price level index greater than 100. The next highest was Fiji, with a price level index of 85.